As such, Buck has launched a checklist aiming to help trustees and employers understand these risks, including actions that can be taken to mitigate them. The checklist has been designed to cover nine central aspects of effective pension scheme management, including trustee/employer processes, scheme administration, and secretarial and governance issues.
It also prioritises actions over different time periods, from actions required immediately to those recommended over the next three months and beyond.
Some immediate actions which pension schemes should be planning for over the coming month include:
1. Trustee / employer processes
Adequate cash balances: Consider increasing the float with additional funds
Banking: Test business continuity plans with banking and payroll providers so key activities are uninterrupted
Signatures: Agree alternative processes to ‘wet signatures’, such as accepting instruction by email
Employer payroll: Ensure contributions can continue in line with the schedule
2. Pension scheme administrators
Daily payments: Ensure all administrators can access all banking systems remotely
Paying pensioners: Put systems in place to ensure payments can be done remotely including submission of BACS files and cheque production where necessary
3. Pension Protection Fund and Scheme Return
Submission and checking: Ensure advisors have contingency plans in place to gather and submit information on time, and that they are able to check the Scheme Return as appropriate
Section 179: Ensure the Scheme Actuary has completed any certificates before 31 March 2020
Contingent assets: Ensure all covenant and legal advisors can complete documentation by 31 March 2020
4. Secretarial and governance
Changes in policy and implementation of social distancing has led to postponed meetings or phone conferences; consider whether advisors have suitable plans and technology in place to be able to follow these guidelines
5. Investment
Liability-driven investment (LDI) portfolios: Be aware that falls in gilt-yields might lead to re-leveraging events; consider how assets might be usefully re-deployed
Transfer implementation: Consider delaying or phasing asset transition exercises particularly where these may result in crystallising losses or periods of ‘out of market’ risk
6. Defined contribution (DC) and Additional Voluntary Contributions
As DC members bear the investment risk, the trustees may wish to consider targeted messaging; consideration of potential operational and investment risks is recommended
7. Funding
The impact of market movements on defined benefit pension schemes will be mixed depending on equity and LDI holding; where the employer covenant is strong, trustees may weather the storm, but if weak or adversely affected by COVID-19, trustees may look to bolster funding by cash or other security
8. Covenant
Businesses may experience reduced demand, staff shortages, and loss of supply, whilst delayed sales and increased costs could impact cash flow; understand the potential impact and any contingency plans in place to help decide whether the employer can meet contribution amounts
9. Life assurance
Insurers are likely to be working at reduced capacity so claims may experience delayed processing times; death claims are likely to continue to be treated as high priority, but the implications of catastrophe limits should be considered
The full checklist can be found here.
David Piltz, U.K. Managing Director of Buck, comments: “This is an unprecedented time for everyone, and it’s expected that pension scheme trustees and sponsoring employers are concerned about the impact on their scheme. By responding quickly and effectively, this checklist aims to provide the tools needed to help minimise the impact of COVID-19 for all pension schemes. We believe the timely release of this checklist will help those managing pension schemes think through a plan of action to help mitigate the risks involved and ensure schemes are prepared for what lies ahead.”
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